The Prime Minster was very quick to start the scare campaign over Labor’s improvements to negative gearing and capital gains tax by arguing the changes would distort the housing market. Ask any first home buyer about the state of the current housing market and you will get first hand feedback of just how distorted the housing market already is – just not in the same way the PM is arguing.
First home buyers right across Australia - young people, modest income earners trying to get a foothold on the property ladder — will tell you how hard it is to break into the housing market. They will tell stories of being outbid at auction or about the lack of affordable houses on the market and having to settle on a smaller unit instead of housing that actually meets their needs as it’s the only option available and affordable.
Unfortunately, these are not isolated stories but are a common occurrence every weekend right across Australia.
There is a whole generation of young Australians and those on lower incomes who are giving up on the great Australian dream of aspiring to home ownership. Australian Bureau of Statistics data tells us that fewer than half of all 25-34-year-olds now own their own home, down 25 per cent over the past 30 years.
This should be no surprise with houses now costing 6.5 times average incomes and average home loans being more than $300,000. The stark reality for many first home buyers is simply one of unaffordability.
The question facing policy makers today is how to deal with the reality of increasing numbers of moderate income Australians being locked out of the housing market.
How do we re-balance and level the playing field so Australians can enjoy the benefits of owning their own home?
Labor’s policy on negative gearing and capital gains seeks to do just that and is deliberately designed to bring fairness back into the Australian housing market. By restricting negative gearing to new housing and reducing the discount on capital gains to 25 per cent, Labor’s policy will stimulate new housing supply.
At the same time it will ensure first home buyers are not disadvantaged by Commonwealth tax settings which overwhelmingly benefit those buying their second, third, fourth, fifth or even sixth house.
We want to level the playing field so first home owners can compete with property speculators, boost housing supply, while creating tens of thousands of new construction jobs.
We accept there will be critics, most notably from vested interest groups which have the most to lose from changing the current advantageous arrangements, but it is important as the debate rolls on that we focus on what is actually happening right now.
Unsustainable house price growth based on speculation is bad for first home buyers and bad for the economy. And worst of all, existing tax incentives are not generating new supply and a generation of Australians – young people and those on modest incomes – are being priced out of a market that overwhelmingly favours investor interests.
These changes on their own won’t solve the affordability challenges but there is plenty of independent evidence that indicates by making these modest but much needed reforms, it will ease pressure on housing affordability and stimulate new housing supply.
And that’s just what first home buyers need.
This piece was first published on the Labor Herald on Thursday 24 March, 2016